Giblin v. Commissioner of Internal Revenue

This is a petition for review of a decision of the Tax Court involving income taxes for 1945. The questions presented for our consideration are two. First, whether loans made by taxpayer to a corporation, of which he was an officer, director, large stockholder and principal actor, are deductible in full as a business bad debt under Section 23(k) (1) of the Internal Revenue Code of 1939, 26 U.S.C.A., or whether these loans are deductible only under Section 23(k) (4) as a non-business bad debt not incurred in taxpayers trade or business, and are thus to be taken into account as a short term capital loss. Second, whether taxpayers cancellation in 1945 of $31,668.23 of a total indebtedness owing him of $51,668.23 from the corporation at a time when it was insolvent both before and after the cancellation, such cancellation being made coincident with a refinancing and reorganization of the corporations affairs to provide it with capable management and enable it to obtain additional funds, constitutes a bad debt loss or amounts to a contribution to the corporations capital.